SNP 48p Income Tax Impact: Why Scotland May Lose £22m in Tax?

The SNP 48p income tax impact cannot yet be described as a confirmed £22 million loss. Independent modelling suggests Scotland might have collected about £22 million more if income above £125,140 had been taxed at 45% rather than 48%, but the result depends on assumptions about how high earners would otherwise have behaved.

Official data shows total Scottish income-tax liabilities increased to £18.6 billion in 2024–25. The debate is therefore about whether the top rate raised less than a hypothetical alternative not whether Scotland’s total income-tax revenue fell.

Key Takeaways:

• The £22 million figure is a modelled central estimate, not an official finding.
• The estimated revenue effect ranges from a £15 million to £30 million loss.
• Top-rate taxpayer numbers rose, but average top-rate income weakened.
• Pension saving, dividends, income timing and migration are possible explanations.
• More detailed taxpayer data is needed before causation can be established.

These distinctions are essential when assessing the policy’s fiscal effect.

What Is the Latest Claim About the SNP 48p Income Tax Impact?

The latest claim is that behavioural responses may have outweighed the mechanical benefit of Scotland’s one-percentage-point top-rate increase.

The 48% rate began in April 2024, replacing the previous 47% rate on relevant income above £125,140. An independent analysis of the first full-year outturn estimated that applying 45% to a larger, modelled tax base could have raised £2.091 billion, compared with approximately £2.069 billion actually raised from income within Scotland’s top band.

What The £22 Million Claim Means?

• It is a comparison with a hypothetical 45% policy.
• It is not £22 million that was collected and then lost.
• Its central estimate assumes new top-band entrants earned about £4,000 above the threshold.
• Alternative assumptions produce an estimated loss of £15 million to £30 million.
• It does not identify which taxpayer behaviours caused the difference.

The analysis therefore raises a credible policy question without providing a final causal answer.

Did Scotland’s 48p Top Rate Actually Lose £22 Million?

No direct observation proves that Scotland lost precisely £22 million. The figure is a counterfactual: an estimate of what revenue might have been under a policy that did not operate.

A basic or “static” calculation indicated that the extra penny could raise about £53 million if taxable incomes remained unchanged. After allowance for avoidance, income shifting, reduced activity and migration, the expected yield was reduced by approximately 85%, leaving around £8 million.

The Scottish Government’s original 2024–25 budget forecast treated the new advanced band and higher top rate together, estimating an £82 million combined increase. This is different from isolating the one-point top-rate change.

The £22 million claim goes further by arguing that reported taxable income contracted enough for 48% to raise less than 45% might have raised. That interpretation is consistent with parts of the data, but Scotland’s economy, taxpayer composition and sector performance may also have affected the result.

What Do the Official HMRC Figures Reveal About Scottish Tax Revenue?

The official outturn provides the factual baseline. It records liabilities and taxpayer numbers but does not calculate the revenue effect of a hypothetical lower rate.

Scotland’s Overall Income-Tax Receipts

The official Scottish tax outturn figures show £18.635 billion in non-savings, non-dividend income-tax liabilities for 2024–25, up 9% from £17.093 billion.

Scotland had 3,036,400 taxpayers, an increase of 3.9%, while average liability rose by £290. Self Assessment liabilities fell from £6.598 billion to £6.503 billion, whereas PAYE liabilities increased from £10.558 billion to £12.211 billion, or almost 16%.

What Happened In The Top Band?

The number of Scottish top-rate taxpayers rose from 35,400 to 41,400, a 17% increase. Top-band tax increased from £1.876 billion to £2.069 billion, or 10%, while implied income in the band grew from £3.991 billion to £4.310 billion, or 8%.

Average income above the threshold per taxpayer consequently fell from £112,754 to £104,202, a 7.6% decline. Official figures also show average total liability among Scottish top-rate taxpayers falling from £98,554 to £95,570.

Scotland And The Rest Of The UK

Top-Band Comparison

The analysis also calculated that Scottish income per top-rate taxpayer had previously remained between 73% and 81% of the wider UK level, before falling to approximately 59.2% in 2024–25. Scotland’s PAYE-related share remained around 8.43%, while its UK Self Assessment share fell to 4.90%.

Together, these figures explain the concern, although they do not establish its cause.

How Was The £22 Million Revenue Estimate Calculated?

The calculation first separated approximately 6,000 new top-rate taxpayers from those already above £125,140. It assumed the new entrants averaged £4,000 above the threshold, placing their average relevant income near £129,140.

The model then increased the income of existing Scottish top-rate taxpayers in line with comparable growth in the rest of the UK.

This produced a counterfactual Scottish top-rate tax base of approximately £4.646 billion—7.8% above the £4.310 billion actually declared.

Taxing that larger base at 45% produced estimated revenue of £2.091 billion. The difference from the £2.069 billion collected at 48% was approximately £22 million.

Different assumptions for the income of new entrants produced the £15 million to £30 million range.

This approach resembles a difference-in-differences comparison, but it relies heavily on the rest of the UK representing what would have happened in Scotland.

It also cannot directly separate the effect of the 2024 increase from delayed responses to Scotland’s wider three-percentage-point top-rate gap.

Why Might A Higher Top Tax Rate Reduce Taxable Income?

Higher-income taxpayers often have more control over the form and timing of their income. That can produce a larger behavioural response than among employees whose earnings are paid entirely through payroll.

Possible Behavioural Responses

• Increasing pension contributions to reduce taxable earnings.
• Using salary-sacrifice arrangements where permitted.
• Taking dividends rather than salary as a company owner.
• Moving bonuses or other income between tax years.
• Reducing additional work, contracts or working hours.
• Changing tax residence between Scotland and another UK nation.
• Altering the balance between employment and self-employment income.

Scottish powers apply to employment, pension, property and self-employment income, while savings and dividend taxation remains reserved. A company owner can therefore reduce income within the Scottish tax base without moving home or reducing the underlying business activity.

The Laffer curve describes the theoretical point at which a higher tax rate shrinks the taxable base sufficiently to reduce revenue. The latest figures are consistent with that possibility, but one year of aggregate data cannot prove Scotland has crossed that point.

What Does Scotland’s 48p Rate Mean For High Earners?

The practical effect depends on a taxpayer’s residence, income type, total earnings and access to the standard Personal Allowance.

Who Pays The 48% Rate?

The current Scottish income tax bands retain six rates for 2026–27. The 48% rate applies only to relevant taxable income above £125,140; it does not apply to the taxpayer’s whole salary.

Income from £75,001 to £125,140 is taxed at the 45% advanced rate, while the higher rate is 42% between £43,663 and £75,000. Savings and dividend income follows UK-wide rules.

The Difference Between Scotland And The Rest Of The UK

The comparable additional rate elsewhere in the UK is 45%. A Scottish employee earning £130,000 has £4,860 above the £125,140 threshold, so the isolated three-point top-rate difference adds approximately £145.80.

Selected 2026–27 Comparisons

These official examples assume the same income and standard circumstances.

Why Is The Wider Gap Larger?

The £5,331 difference at £130,000 is not caused solely by the 48% rate. Scotland’s higher rate begins earlier, and the 45% advanced rate applies where much of the rest of the UK charges 40%.

The withdrawal of the Personal Allowance between £100,000 and £125,140 also creates unusually high effective marginal rates.

Income tax alone can reach 67.5% within that range in Scotland; adding employee National Insurance can take the combined marginal deduction to about 69.5%, compared with approximately 62% elsewhere.

Is The Rest Of The UK A Reliable Comparison For Scotland?

It is useful, but it is not a perfect counterfactual. Scotland shares a currency, national labour market and largely open internal border with the rest of the UK, yet its mix of industries and high earners differs.

London has a greater concentration of finance, professional-services and exceptionally high incomes.

Scotland has greater exposure to energy-sector earnings, including North Sea activity, and may have different proportions of public-sector professionals, company owners and taxpayers only slightly above £125,140.

The statistical comparison also includes incomplete records. Approximately £4.272 billion of the rest-of-UK figure was estimated for unreconciled PAYE cases, compared with £291 million at the equivalent stage a year earlier; Scotland’s estimated amount was £37 million.

Modelled allocation of those cases across tax bands could affect the comparison.

The analysis also uses only nine annual observations for some tests. Even apparently significant changes can be fragile in such a short series, making another year of data particularly important.

How Has The Scottish Government Justified Its Income-Tax Policy?

The Scottish Government argues that progressive taxation asks higher earners to contribute more towards public services and social programmes.

Its wider policy comparison includes services such as free university tuition, free prescriptions and the Scottish Child Payment.

Responding to the latest analysis, an official spokesperson said: “The number of Scottish taxpayers and liabilities continued to grow strongly in 2024-25.” The response also highlighted that Scotland’s top-rate taxpayer population grew faster than its rest-of-UK counterpart.

For 2026–27, official modelling indicates that people earning less than about £33,500 around 55% of Scottish taxpayers will pay slightly less income tax than counterparts elsewhere in the UK.

Around 62% of households are estimated to be better off or unaffected after Scottish income-tax and devolved social-security policies are considered together.

Those distributional arguments do not resolve whether 48% maximises top-band revenue. Fairness, service funding and revenue efficiency are related but separate policy tests.

What Evidence Is Still Needed To Measure The Full 48p Tax Impact?

The public figures are too aggregated to identify whether the observed difference came from tax planning, migration, sector changes or ordinary statistical variation.

Which Taxpayer Data Is Missing?

Evidence Needed For A Stronger Finding

• Income distribution immediately above and below £125,140.
• Pension contributions among taxpayers earning over £100,000.
• Dividend income received by Scottish company owners.
• Monthly address changes involving top-rate taxpayers.
• Income brought forward or deferred between tax years.
• Regional top-rate data separating Aberdeen from the rest of Scotland.

A visible concentration of reported income just below £125,140, for example, would support the income-management hypothesis.

Sector And Employment Effects

Data by occupation and industry could show whether weaker income growth was concentrated in oil and gas, healthcare, financial services or owner-managed companies.

The independent analysis estimated that the apparent gap was equivalent to roughly £350 million of top-band income, but only detailed records could determine where it went.

What Can Later Outturns Show?

The independent fiscal forecast methodology recognises that outturn figures cannot reveal precisely how much revenue is lost through behavioural responses.

It previously estimated that such responses would remove more than half of the forecast revenue from the combined 2024–25 tax changes.

Another outturn could indicate whether 2024–25 was a temporary blip or the beginning of a sustained trend. Even then, matched taxpayer and sector data would be needed to explain causation.

What Could Happen Next To Scotland’s 48p Income-Tax Rate?

The 48% top rate remains in place for 2026–27, alongside the 45% advanced rate. Current policy also freezes the higher, advanced and top thresholds, increasing the likelihood that nominal pay growth will move more taxpayers into those bands.

Ministers could retain the rate while awaiting more evidence, commission a formal evaluation or review behavioural assumptions before a future budget.

Opponents are likely to argue that the £22 million estimate demonstrates a competitiveness problem, while supporters can point to growing overall liabilities and the policy’s distributional objectives.

The decision cannot be judged on the £22 million estimate alone. Policymakers must consider total revenue, the tax base, economic competitiveness, household distribution and the value placed on funding devolved services.

Conclusion

The SNP 48p income tax impact remains uncertain rather than conclusively negative.

Scotland collected £18.6 billion in income tax during 2024–25, and both total liabilities and the number of top-rate taxpayers increased.

However, average income and average liability among top-rate taxpayers weakened while corresponding measures elsewhere in the UK grew.

Independent modelling interprets that divergence as evidence that a 45% rate might have raised approximately £22 million more.

That is a plausible hypothesis, not an official finding. Pension contributions, dividend substitution, income timing and migration may have contributed, but sector differences, incomplete data and statistical noise remain credible alternatives.

A reliable conclusion will require further outturns and more detailed taxpayer-level evidence.

Frequently Asked Questions

Is £22 Million Significant Compared With Total Scottish Receipts?

It represents roughly 0.1% of Scotland’s £18.6 billion income-tax outturn. Its policy significance is therefore greater than its effect on the total budget.

Are Scottish Dividends Taxed At 48%?

No, Scottish income-tax rates do not apply to dividend income. Dividend rates remain determined on a UK-wide basis.

Could Pension Contributions Explain The Revenue Pattern?

Additional pension contributions can reduce taxable employment income and may form part of the behavioural response. Public data does not show whether top-rate Scottish taxpayers increased contributions sufficiently to explain the result.

Has The Data Proved That Wealthy People Left Scotland?

No, the aggregate tax figures do not prove migration. Address-change and taxpayer-level residence data would be required to test that explanation.

What Does The Laffer Curve Describe?

It describes the possibility that revenue eventually falls when a tax rate becomes high enough to shrink the taxable base. It does not identify one universal revenue-maximising rate.

Why Did Taxpayer Numbers Rise While Average Income Fell?

Frozen thresholds can pull people with relatively small amounts of income into the top band. A larger group containing more taxpayers near the threshold can therefore have a lower average income.

When Could Clearer Evidence Become Available?

The next annual outturn should show whether the latest pattern continued or reversed. Establishing why it occurred will still require more detailed information than the published totals provide.

Note

The £22 million figure must be described as an independent counterfactual estimate, not an official loss recorded by HMRC. The evidence does not establish that high earners left Scotland, stopped working or changed their income arrangements, and no single explanation should be presented as confirmed.